The Bank of Canada lowered interest rates once again on January 29, cutting the policy rate by 25 basis points to 3%.
This marks the sixth consecutive rate cut since June. The Bank of Canada stated that inflation has returned to its 2% target and that the economy is gaining momentum.
Governor Tiff Macklem noted that the previous rate cuts have been working, as signs of economic activity picking up are becoming evident.
However, Canada’s economic outlook appears uncertain due to upcoming U.S. tariffs. U.S. President Donald Trump has threatened to impose a 25% tariff on all imports from Canada.
The Bank of Canada has lowered its GDP forecast in its monetary policy report. According to its projections, Canada’s GDP growth will be 1.8% in both 2025 and 2026. In the previous forecast, the bank had predicted 2.1% growth in 2025 and 2.3% in 2026.
The downward revision in projections is attributed to slower population growth and a decline in population in 2026 due to new immigration targets. Additionally, policy uncertainty has led to a decline in business investment, contributing to the revised forecast.
If the U.S. imposes a 25% tariff on Canada, the central bank has outlined four possible scenarios. According to the Bank of Canada’s projections, the impact of the tariff could bring GDP growth down to 2.4% in its first year of implementation.
